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In early Asian trading on Wednesday, GBP/USD fell back to around 1.2500. The U.S. dollar index edged back up to 105.40, pushing GBP/USD lower. Fed officials Philip Jefferson, Susan Collins and Lisa Cook will speak later on Wednesday. The Bank of England interest rate decision due out on Thursday will be in focus.
On Tuesday, Minneapolis Fed President Neel Kashkari said it was too early to declare that inflation has stalled and that the Fed could cut interest rates this year if price pressures ease. Richmond Fed President Thomas Barkin said he believes current interest rates are enough to keep inflation down and that the Fed can remain patient because of the strong job market. U.S. Federal Reserve officials reiterated that before cutting interest rates, they need to observe more economic data to predict that the inflation rate will return to the 2% target.
Market expectations for the Fed’s easing policy prospects fell slightly, boosting the dollar against major currency pairs. The probability of a June rate cut remains steady at around 10%, while the probability of a September rate cut has dropped to 85%, according to the CME FedWatch Tool. On Friday, traders will focus on a preliminary reading of the University of Michigan Consumer Sentiment Index, which is expected to fall to 76.0 in May from 77.2 in April.
On the other hand, Sterling (GBP) is lower as investors focus on the upcoming monetary policy meeting. The Bank of England is expected to hold interest rates steady at 5.25%. However, market speculation that the Bank of England will cut interest rates earlier than the Federal Reserve has put pressure on the pound. Bank of England Governor Andrew Bailey said last month he was comfortable with market expectations for two to three interest rate cuts this year.
